I have life and disability on my mortgage and line of credit. The payments are about $290.00 monthly. My insurance agent has suggested that I buy an insurance policy instead of paying this money out to a bank. He says that I could get a life policy and have this definite amount compared to the bank who would only pay what is owing. My husband and I have life insurance already and have disability insurance with our employers. This does seem to make sense but I am nervous to cancel this insurance with my bank. What is your opinion?
Thank you for your question about mortgage life insurance and mortgage disability insurance.
Both of these kinds of insurance are very specific types of policies. The mortgage life insurance will pay the balance of your mortgage, in the event of your death. The mortgage disability insurance will pay your monthly mortgage payment if you suffer a disability, as defined by the policy, and can no longer work.
I realize you said you have mortgage and disability insurance you purchase from your bank. I suggest you double-check the terms of your policy. Is this really mortgage and disability insurance that benefits you and your survivors? Or, do you really have private mortgage insurance (PMI) that benefits the bank should you default? Some consumers are confused by PMI and who benefits from it, and I want to make sure you understand the distinction between PMI that protects the bank and death and disability plan that protects you.
Regarding your disability insurance, you stated that you have coverage through your employers. I suggest that you find out exactly how much coverage your work-based policy offers. Sometimes, there is a ceiling on how much you can receive in total disability benefits. The ceiling is based on a percentage of your income at the time you are disabled. If your work-based disability coverage pays you so much that the mortgage linked policy is not required to pay you, then you are paying money for coverage that will not benefit you. Check the language in the policy that is linked to your mortgage and make sure that it will still pay you, when the coverage of the work-based policy is taken into account. Your mortgage disability policy may contain a provision that allows the policy issuer to not pay you, making the mortgage disability policy not worthwhile.
Separately, if you feel that your work-based policy does not offer adequate coverage, check if it can be expanded, extending its coverage. Compare the costs for doing that to what you are paying for the mortgage disability policy. Also, you can shop around, comparing what other insurers, including your independent insurance agent, have to offer.
If you are in a situation where no other disability insurance is available to you, for whatever reason, then taking out the mortgage disability insurance makes good sense.
Mortgage life insurance, as I mentioned above, pays your mortgage balance, in the event of your death. In my view, mortgage life insurance only is looking at a part of your financial picture. I believe that your total life insurance needs should examined. If you die, there are likely to a whole lot of financial demands on your survivors than just paying the mortgage. I tend to agree with your insurance agent that a more comprehensive life insurance policy makes more sense. It will provide you with greater coverage, allowing your survivors a better chance to remain financially stable. You may also find that a term life policy that covers more than just your mortgage is a better deal, based on the price of the premium and the coverage you obtain.
One very important reason to take out mortgage life insurance would be if no other life insurance coverage is available. Most mortgage life insurance policies do not require a medical examination. If you cannot find reasonable independent coverage due to an existing medical condition, mortgage life insurance may be the best option.
Again, I recommend comparison shopping. Show your insurance agent the terms of the mortgage life insurance. Give him a chance to explain specifically why a policy he can offer you is superior to what you have in place right now. Let the facts speak for themselves.
Don’t let your nerves be the enemy of a sound financial solution. It is understandable for you to be nervous, when considering these issues, but you will be best served by reviewing the alternatives that are available in the market. It would not surprise me at all if you discover that the mortgage life insurance and the disability life insurance are not the policies that are best for you.
I hope this information helps you Find. Learn & Save.